Product diversification decisions considering quality reliability and self-competition in a global supply chain

Sourcing overseas enables customers to experience high-quality products, especially for those in the developing countries/regions. This induces many brand-owners to decide product diversification by selling both imported products (high quality reliability) and local products (low quality reliability), although product self-competition occurs and may result in system profit loss. In this paper, we consider a global supply chain comprising of a brand-owner, a local supplier, and an overseas supplier to investigate the brand-owner’s strategic decisions of product diversification when the quality levels of both the imported product and the local product are not always reliable. We identify three interactive effects regarding the wholesale prices, the order quantities, and the quality levels. Interestingly, we find that, when the quality reliability of the imported product is in a moderate range, the brand-owner is only incentivized to decide product diversification given intense self-competition. We also find that the brand-owner’s total demand size of the products is first decreasing then increasing in the competition intensity.